Organizational Justice in Mergers and Acquisitions

Antecedents and Outcomes

Nicholas Jackson

• Publisher: Palgrave Macmillan
• Year: 2018
• Print ISBN: 9783319926353
• eBook ISBN: 9783319926360
• Topic: Negocios y empresa
• Subtopic: Estrategia empresarial

This book provides a unique account of how perceived justice is influenced by various aspects of an organizational merger and investigates the impact on behavior for those involved in the process. Drawing from both psychological and sociological insights, the author considers justice from an individual and group perspective in light of the political and strategic implications of mergers and acquisitions. Experiences from two empirical cases are used to consider the depth of theoretical analysis provided, in terms of practical outcomes for both organizations and employees alike. In this pioneering new book, the author explores communication, employee attitudes, trust and commitment, and the psychological contract between the employee and the organization, emphasizing the importance of developing a new meaning of organizational culture. Although primarily aimed at an academic audience, this book will also be useful to practitioners as it illuminates the potential pitfallsof overlooking the importance of fair treatment in the workplace.

Part IMergers and Acquisitions

© The Author(s) 2019

Nicholas JacksonOrganizational Justice in Mergers and Acquisitionshttps://doi.org/10.1007/978-3-319-92636-0_1

Begin Abstract

1. Introduction

Nicholas Jackson¹

(1)

Leeds University Business School, Leeds, West Yorkshire, UK

Nicholas Jackson

End Abstract

1.1 Emerging Patterns and Trends

The popularity of mergers and acquisitions (M&A) as a development strategy has increased significantly over the past 25 years, due in part to an ongoing pressure for organizations and companies to continuously renew and change themselves in an attempt to remain competitive and innovative. When considering opportunities for growth, Johnson, Scholes, and Whittington (2011) define three forms of developmental strategy for organizations: internal development, acquisition, and alliances. In comparison to other developmental growth strategies, Horwitz et al. (2002) recognize that M&A can offer an enticing range of competitive advantages that organic growth cannot achieve. They cite as major advantages the acquisition of new capabilities and resources in addition to the potentially unrivaled opportunity for costcutting. Furthermore, they provide greater control than the alternative options of licensing or forming alliances (King, Dalton, Daily, & Covin, 2004). It is therefore recognized that this form of integration has potential to offer several benefits for organizations and when compared to alternative strategies, such as organic growth or an alliance, the ability to grow the organization with an almost immediate effect.

If we consider merger trends over recent times, both the number of deals and financial value show the growth pattern which corresponds with a period of increasing economic globalization and significant rises in foreign direct investment. Within this context of globalization and subsequent intensification of competitiveness, M&A became the dominant mode of firm growth in the 1980s and 1990s for both European and U.S. firms (see Capron, 2004; Berggren, 2003; Hayward, 2002). In part recognition of this, there is a considerable body of research that examines M&A and their consequences. As Fig. 1.1 shows, there was a substantial increase during the period 1998–2000 and then an equally rapid decline during the years 2001–2003. This coincides with a period of considerable economic expansion and subsequent contraction in global markets and corporate valuations. The incline continued again in 2004 until 2007 when, due to the global financial crisis in the following year, there was a severe decline in corporate valuations. It is noticeable that even so, after an initial decline, the number of deals has continued in strength.

Fig. 1.1

Global merger and acquisition deals. (Note: Based on data presented by Thomson One Banker (2017))

These periods of increased activity are not uncommon in M&A and are often referred to as “merger waves.” Typically, a cyclical pattern emerges beginning with an intense period of activity and tailing off eventually with much quieter and leaner spells in the intervening years. Going back to review activity from the early part of the twentieth century, there have been six merger waves recognized within the United States (globally acknowledged as trendsetters over this period). These consist of the periods 1893–1904, 1916–1929, 1965–1969, 1981–1989, plus the periods 1992–2000 and 2003–2007 (Vazirani, 2015), the latter two aligning with those periods presented in Fig. 1.1 and depicted as global M&A deals. Of interest are the most recent periods, identified as the age of the strategic mega-merger (1992–2000) and a period of intense corporate leverage (2003–2007). These two periods recorded incredible growth and culminated in unprecedented levels of merger activity by deal value and number of deals concluded (Vazirani, 2015).

Connecting with the interest M&A has received over these periods there has been a notable increase in the volume of research undertaken by both academics and practitioners encouraged in part, no doubt, by the wealth of interest in the effectiveness of integration compared to other forms of corporate expansion strategy. Often being the conduit for radical forms of change, M&A brings with it several challenges for organizations. While the data in Fig. 1.1 illustrate the considerable increase in the popularity of M&A, there is often a price to pay for the route to expansion that they offer. Even though these statistics bear out the fact that strategically they are often the preferred route for growing organizations, there are further data raising awareness to underachievement, underperformance, and stakeholder dissatisfaction. While research attempting to diagnose these issues has grown in abundance over this period, it is only of more recent times that attention has turned to the role of human behavior.

What many contributors to this topic often avoid doing with any clarity is defining what is meant by “failure” in terms of a merger or acquisition. When defining failure, we need to consider that it isn’t necessarily referring to wholesale abandonment of the project but may be more reflective of the failure to achieve the strategic objectives that were outlined in the premerger prospectus. Researchers of M&A tend to dispute the key underlying causes of the failure (in whatever format) and tend to highlight both hard and soft factors, with little commonality of purpose. From a much broader perspective, it is evident there are several factors that are attributable to most of the failure rates, including paying the wrong price, buying at the wrong time, selecting the wrong partner, and buying for the wrong reasons. However, these tend to be easy opt-outs. For example, how do you define the wrong price if the deal turns into a massive success? It is only the wrong price if the merger isn’t perceived as having achieved its objectives and therefore deemed to be a failure. However, upon closer scrutiny this may be for a variety of reasons including a failure to integrate staff and/or systems effectively, poor leadership, and failure to make available those with the necessary skills sets. Further analysis may then begin to get to the root-cause (i.e. what were the barriers impeding staff integration, what was needed from leaders, where were those with the necessary skill-sets, and why were they not readily available and in place at the right time?).

1.2 Methods, Typologies, and Objectives of Integration

The strategic direction of integration and the method of approach taken by either the merging entities or acquiring organization can also be categorized depending upon several criteria. These will have an important influence because the subtleties of each case will provide the employee with contrasting perceptions of the integration and have an influence on how they evaluate the changes being implemented. A relevant example is the power differential (acquirer relative to target) between the organizations involved, which may define whether the integration is deemed a merger or acquisition, as the former will consist of entities that are similar in size. The dispersal of power across the entities has also been recognized as a major influence on perceived equity and justice (Halvorsen, 1984) because of its effect on the decision-making process (Haspeslagh & Jemison, 1991; Mirvis, 1985; Olie, 1994). This potential domination effect may be significant toward how the new organization is developed as the dominating partner will have more opportunities to influence the structure and design (van Knippenberg, D., van Knippenberg, B., Monden, & de Lima, 2002).

1.2.1 Integration Method

Table 1.1 depicts the four recognized methods of integration and their characteristics including an acknowledgment of whether an acquisition is deemed to be either hostile or friendly. The difference between these two acquisition typologies is that a hostile bid is attempted without the approval of the target organization’s board and a direct approach is made by the potential acquirer to the target organization’s shareholders. A friendly bid will be offered to the target shareholders by the potential acquirer with the approval of their board. If these are considered in their extreme forms, then the contrast between the two is stark. For example, in a friendly acquisition with a low level of integration it is much more likely that the acquired organization will retain its own identity and most of its decision-making autonomy (Citera & Rentsch, 1993). However, in an environment of hostile acquisition with a high level of integration this is unlikely to be the case.

Table 1.1

Forms of organizational integration

Method of integration	Characteristics
Merger	Entities are usually of a similar size. Transaction will consist of an exchange of shares with little or no cash
Acquisition	Friendly : Deal goes to shareholder vote with board of directors’ approval (an agreed bid)
	Hostile : Deal goes to shareholder vote without board of directors’ approval (a hostile bid)
Proxy contest	Attempt to gain control of target company’s board of directors via a shareholder vote
Leveraged buyout	A purchase of shareholder equity by a group, often including incumbent management, and financed by debt, venture capital, or both

Note: Based on material presented in “Acquisition strategy and implementation,” by N. Hubbard, 2001. Basingstoke, UK: Palgrave

While the relative size of the integrating organizations may have significant influence, according to van Knippenberg et al. (2002) the difference between an actual merger and an acquisition is primarily, in practice, a legal matter. Even though during a merger the notion of equality is acknowledged, there will be a dominant partner due to their size, profitability, power, and influence or even perhaps their viability in comparison to their intended partner (Rentsch & Schneider, 1991). In fact, it is acknowledged that, from a psychological perspective at least, most mergers are takeovers (Cartwright & Cooper, 1992). This led Hubbard & Purcell (2001) to avoid using the term “merger,” and instead during research they used the term “acquisition” rather than “merger”:

Since the latter presupposes a...

Table of contents

• Cover
• Front Matter
• Part I. Mergers and Acquisitions
• Part II. The Organization System
• Part III. The Employee
• Back Matter